Cross-border investment and trade give rise to both economic gains and economic vulnerabilities. As geopolitical competition is intensifying, governments increasingly resort to restricting cross-border investment and trade. Policies are informed by a desire to limit security risks and secure technological advantages rather than pursue efficiency gains.
> Germany’s outward FDI is concentrated in the European Union, the United States, and the United Kingdom. China and Russia account for a relatively small overall share of German outward FDI. However, the stock of FDI is only an imperfect indicator of associated supply chain vulnerabilities and technological leakage risks.
> The economic impact of German FDI policies – both the screening of inward investment and the promotion of outward investment – is relatively limited. Germany should conduct a review of its FDI policies in the context of its new national security strategy and provide estimates of the economic costs associated with mitigating FDI-related risks.
> A more coordinated EU approach to regulating inward FDI is highly desirable. It would help strengthen Europe’s position vis-à-vis third parties, whether in terms of pushing for a level playing field vis-à-vis China or coordinating inward FDI policies with the United States.
For complete Policy Brief: A More Strategic Approach to Foreign Direct Investment Policy